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  • Why Surging Oil and Gas Prices Isn't Bad for the Economy [Edit or Delete]0 comments
    Jun 8, 2011 10:47 AM

    OIL SHOCKER: OPEC Can't Agree On Output Hike, Prices Surging, Another Meeting Coming In Next 3 Months: http://www.businessinsider.com/clusterstock#ixzz1OgySYyIX

    It is assumed by bloggers and the mainstream media that surging oil prices will hurt the economy. On the contrary:

    1. Surging oil benefits the rapidly growing energy sector. The energy sector has done a lot of heavy lifting in the S&P 500 since the August lows of 2010, growing by more than 55 percent in that time. At the same time surging energy prices has not hurt other sectors such as transports.
    2. Surging oil leads to surging gas, heating oil and food prices, which means commuters will have to keep maxing out their credit cards to fill up the tank to get to work, keep the house warn, and put food on the table. Gas is considered economically inelastic so demand is unchanged as prices rise. This additional spending on energy and food adds to GDP and is a component of consumer spending. Often lib/libertarian bloggers pretend one type of consumer spending is ‘superior’ to another or that gas prices doesn’t count. Nonsense. It’s all spending.
    3. At the same time online and large retailers aren’t impacted much because consumers re-leverage to compensate for surging energy and food prices. So that’s why stocks like AAPL PCLN NFLX GOOG AMZN are immune to pain at the pump and ‘energy shocks’. 
    4. and finally 

    Wall st. isn’t losing sleep over triple digit oil because of the so called duality of energy prices. The benefit of some sectors (energy, internet) from rising oil is enough to offset the potential weakness in others (transports, financials) so the net result is either the market is flat or rallies. That's why for the past decade stocks and oil have tended to rise and fall together. In Summer 2008 oil almost hit $150 yet the DJIA was still above 12500. Did we have an energy induced bear market? Nope instead it was a financial crisis - completely UNRELATED to energy.

    Regardless of the past, the future is certain: higher oil & gas prices for a loooong time to come. Interest rates never going up again, more speculation, booming BRIC drmand etc

    UGA is up 1% today while the market is only up a little. It's been on my buy list for awhile and will go to $60 soon.

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